USDCAD Dips Below 1.38 After Canada GDP, But Bounces on US Data

USDCAD has been really bullish this month, but the rally has slowed after the push above 1.38 and today we saw a dip after the Canada GDP report. The August GDP number showed that the Canadian economy fell flat, but the advance number for September was positive, helping the CAD.

The stronger-than-expected September data brought positive momentum to the Canadian dollar, causing USD/CAD to dip 30 pips below 1.38, even as the US dollar rallied against other commodity currencies like the NZD and AUD. However, USD/CAD buyers quickly re-emerged, pushing the rate back above 1.38, which could signal more upside potential. In August, the Canadian economy showed signs of slowing down as manufacturing and transportation bottlenecks countered modest service sector growth. After a slight uptick of 0.1% in July, August’s output remained flat.

USD/CAD Chart H1 – Bouncing Off the 100 SMA

Manufacturing was a notable weak spot, declining by 1.2% with underperformance in both durable and non-durable goods. Extended maintenance closures at auto factories and a sharp 10.3% decline in pharmaceutical production contributed to the downturn. Transportation also suffered, with rail transport dropping 7.7% due to work stoppages at CN and CP Rail, further exacerbated by a bridge collapse at Thunder Bay, Ontario, that disrupted logistics.

Canada GDP Report for September

• Canada’s August GDP held steady at 0.0%, meeting expectations, though it was a slight dip from the +0.2% growth seen in July.
• Advance estimates for September GDP show a monthly increase of +0.3%.
• Manufacturing activity declined by 1.2%, marking the largest drag on overall growth.
• Rail transportation saw a sharp 7.7% decrease, impacted by work stoppages at major carriers.
• The finance sector posted a 0.5% gain, supported by increased market volatility and trading activity.

Signs of recovery in September—driven by finance, construction, and retail improvements—suggest a possible Q3 GDP growth rate of around 0.2%. The Bank of Canada faces a challenging environment as inflation remains below target and GDP growth stagnates. To maintain an accommodative stance, the Bank likely needs the overnight rate to stay well under 3.75%, with a 50 basis point rate cut remaining plausible if economic conditions continue to weaken, despite current market pricing assigning just a 23% chance of a deeper cut.

USD/CAD Live Chart